An exemption order must be set up by yourself and serves as an instruction for the bank not to automatically transfer the withholding tax to the tax office. An NV certificate, i.e. a non-assessment certificate, must be applied for from the tax office and is considered confirmation that the person does not have to pay income tax or file an annual income tax return. In this post, you'll learn everything you need to know about the two alternatives.
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Set up an exemption order for the child and save
Children are not taxable? Unfortunately that is not true. Children must also pay income tax if they earn their own money. This involves not only earnings from student jobs, but also investment income. But the good news first: Income tax is only charged when the income is higher than the basic allowance. The allowance for children in 2023 is €6,024 per year.
Nevertheless, there is a tax trap lurking when investing money. In fact, banks deduct withholding tax of 25 percent from investment income in the form of interest or stock dividends. For children, the Capital gains tax, even if the allowance is not exceeded, also if there is no exemption order.
As a parent, you should therefore set up an exemption order right away with your first investment for the child. To do this, you need your child's tax identification number (tax ID). The Federal Central Tax Office sent you this number right after birth.
Tip: If you can no longer find the tax ID, you can request it again in writing from the Federal Central Tax Office. You can find out how this works on the website of the Federal Central Tax Office.
If you have the tax ID, you can fill out the exemption order on behalf of the child and sign it as a legal guardian. Up to 1000€ in investment income will then remain tax-free annually.
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Apply for a non-assessment certificate — quick & easy
As an alternative to the exemption order, you can also give your child a Non-assessment certificate Apply for (NV certificate) at the tax office and submit it to the bank. As long as the child's annual income is lower than the basic tax allowance and no change is expected for the next two years, the tax office issues an NV certificate that is valid for three years.
The form for the non-assessment certificate can be found on the website of the Federal Tax Administration. You can simply fill out the NV certificate form online.
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What is a non-assessment certificate?
But what exactly is an NV certificate and what are the benefits? An NV certificate is a document issued by the tax office and confirms that the child is exempt from flat rate withholding tax.
The advantage of the NV certificate: With it, the child's capital gains remain tax-free even if they are higher than 1000€ per year. However, the administrative burden is higher than with the exemption order because the certificate must be reapplied for every three years from the responsible tax office. Despite the disadvantage of the temporary validity of the NV certificate, the effort is worthwhile.
The only requirement for the non-assessment certificate is that the tax allowance for children is not exceeded.
If you want
Extend NV certificate
After three years, she loses NV certificate its validity. If your child still does not exceed the tax allowance and the savings allowance for children, it is worthwhile to submit a new application for a non-assessment certificate. The NV certificate is not automatically renewed. If the new application for the non-assessment certificate is approved, it is valid again for three years.
It is advisable to submit the application in good time, as a non-assessment certificate cannot be applied for retroactively. However, you can get the withholding tax on children refunded by a tax return from the tax office.
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Save withholding tax for children with NV certificate & exemption order — the most important things in brief
- The flat rate withholding tax also applies to children unless there is a non-assessment certificate or an exemption order. This is the case even if the tax allowance for children, which is 6024€ per year in 2023, is not exceeded.
- It makes sense with the first Investing money for the child set up an exemption order directly. To do this, you need the child's tax ID. The exemption order is completed on behalf of the child and signed by the legal guardian. This means that up to 1000€ of investment income per year remains tax-free.
- An NV certificate is issued by the tax office and exempts the child from withholding tax for three years. To apply for this, you can simply fill out a form online. After three years, the NV certificate loses its validity. It is not automatically extended, but you can apply for it again afterwards. The only requirement for the application is that the allowance for children is not exceeded.
Now that you know how you can save the flat rate withholding tax for your child, you are now welcome to read our other posts about how Children learn to save Can and how much Pocket money for children is appropriate.
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